10-Q 1 cnob20240331_10q.htm FORM 10-Q cnob20240331_10q.htm
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 Table of Contents

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the Quarterly Period Ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to               

Commission File Number:  000-11486

cnoblogo.jpg

CONNECTONE BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter) 

New Jersey

52-1273725

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

301 Sylvan Avenue

Englewood Cliffs, New Jersey 07632

(Address of Principal Executive Offices) (Zip Code)

201-816-8900

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock

CNOB

NASDAQ

Depositary Shares (each representing a 1/40th interest in a share of 5.25% Series A Non-Cumulative, perpetual preferred stock)

CNOBP

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    ☒    No   ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definition of “large accelerated filer”, “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer   ☒

Accelerated filer  ☐

Non-accelerated filer  ☐

 

Smaller reporting company   

Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

            Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value:

38,333,053 shares

(Title of Class)

(Outstanding as of May 3, 2024)

 

    

 
 

Table of Contents

 

   

Page

     

PART I  FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

3

 

Consolidated Statements of Condition as of March 31, 2024 (unaudited) and December 31, 2023

3

 

Consolidated Statements of Income for the three months ended March 31, 2024 and 2023 (unaudited)

4

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023 (unaudited)

5

 

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (unaudited)

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

9

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

41

     

Item 3.

Qualitative and Quantitative Disclosures about Market Risks

58

     

Item 4.

Controls and Procedures

58

     

PART II  OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

59

     

Item 1a.

Risk Factors

59

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

     

Item 3.

Defaults Upon Senior Securities

59

     

Item 4.

Mine Safety Disclosures

59

     

Item 5.

Other Information

59

     

Item 6.

Exhibits

60

   

SIGNATURES

61

  

 

 

Item 1. Financial Statements

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

 

 

(in thousands, except for share data)

March 31,

 

December 31,

 
 

2024

 

2023

 
  (unaudited)    

ASSETS

      

Cash and due from banks

$45,322 $61,421 

Interest-bearing deposits with banks

 232,261  181,293 

Cash and cash equivalents

 277,583  242,714 
       

Investment securities

 619,397  617,162 

Equity securities

 19,457  18,564 
       

Loans receivable

 8,297,957  8,345,145 

Less: Allowance for credit losses - loans

 82,869  81,974 

Net loans receivable

 8,215,088  8,263,171 
       

Investment in restricted stock, at cost

 48,931  51,457 

Bank premises and equipment, net

 29,827  30,779 

Accrued interest receivable

 49,731  49,108 

Bank owned life insurance

 239,308  237,644 

Right of use operating lease assets

 11,725  12,007 

Goodwill

 208,372  208,372 

Core deposit intangibles

 5,553  5,874 

Other assets

 128,992  118,751 

Total assets

$9,853,964 $9,855,603 

LIABILITIES

      

Deposits:

      

Noninterest-bearing

$1,290,523 $1,259,364 

Interest-bearing

 6,298,131  6,276,838 

Total deposits

 7,588,654  7,536,202 

Borrowings

 877,568  933,579 

Subordinated debentures, net

 79,566  79,439 

Operating lease liabilities

 12,843  13,171 

Other liabilities

 78,724  76,592 

Total liabilities

 8,637,355  8,638,983 
       

COMMITMENTS AND CONTINGENCIES

        
       

STOCKHOLDERS’ EQUITY

      

Preferred Stock, no par value; $1,000 per share liquidation preference; Authorized 5,000,000 shares; issued 115,000 shares as of March 31, 2024 and as of December 31, 2023; outstanding 115,000 shares as of March 31, 2024 and as of December 31, 2023

 110,927  110,927 

Common stock, no par value: Authorized 100,000,000 shares; issued 42,218,601 shares as of March 31, 2024 and 42,122,948 shares as of December 31, 2023; outstanding 38,333,053 shares as of March 31, 2024 and 38,519,770 as of December 31, 2023

 586,946  586,946 

Additional paid-in capital

 32,866  33,182 

Retained earnings

 600,118  590,970 

Treasury stock, at cost 3,885,548 common shares as of March 31, 2024 and 3,603,178 as of December 31, 2023

 (76,116) (70,296)

Accumulated other comprehensive loss

 (38,132) (35,109)

Total stockholders’ equity

 1,216,609  1,216,620 

Total liabilities and stockholders’ equity

$9,853,964 $9,855,603 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

(dollars in thousands, except for per share data)

               

Interest income

               

Interest and fees on loans

  $ 120,088     $ 106,903  

Interest and dividends on investment securities:

               

Taxable

    4,334       4,229  

Tax-exempt

    1,154       1,092  

Dividends

    1,125       898  

Interest on federal funds sold and other short-term investments

    2,906       2,975  

Total interest income

    129,607       116,097  

Interest expense

               

Deposits

    60,407       40,087  

Borrowings

    8,900       8,926  

Total interest expense

    69,307       49,013  

Net interest income

    60,300       67,084  

Provision for credit losses

    4,000       1,000  

Net interest income after provision for credit losses

    56,300       66,084  

Noninterest income

               

Deposit, loan and other income

    1,592       1,403  

Income on bank owned life insurance

    1,664       1,531  

Net gains on sale of loans held-for-sale

    506       49  

Net gain (losses) on equity securities

    86       (191 )

Total noninterest income

    3,848       2,792  

Noninterest expenses

               

Salaries and employee benefits

    22,196       22,261  

Occupancy and equipment

    3,009       2,761  

FDIC insurance

    1,800       950  

Professional and consulting

    1,928       2,194  

Marketing and advertising

    677       532  

Information technology and communications

    4,389       3,061  

Amortization of core deposit intangibles

    321       372  

Other components of net periodic pension expense

    (65 )     (25 )

Other expenses

    2,810       2,764  

Total noninterest expenses

    37,065       34,870  

Income before income tax expense

    23,083       34,006  

Income tax expense

    5,878       9,077  

Net income

    17,205       24,929  

Preferred dividends

    1,509       1,509  

Net income available to common stockholders

  $ 15,696     $ 23,420  

Earnings per common share

               

Basic

  $ 0.41     $ 0.60  

Diluted

    0.41       0.59  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

   

Three Months Ended

 
   

March 31,

 

(dollars in thousands)

 

2024

   

2023

 

Net income

  $ 17,205     $ 24,929  

Other comprehensive income (loss):

               
                 

Unrealized holding (losses) gains on available-for-sale securities arising during the period

    (10,361 )     6,528  

Tax effect

    1,395       (2,045 )

Net of tax

    (8,966 )     4,483  
                 

Unrealized gains (losses) on cash flow hedges

    12,880       (4,361 )

Tax effect

    (2,920 )     1,312  

Net of tax

    9,960       (3,049 )
                 

Reclassification adjustment for realized gains on cash flow hedges

    (5,629 )     (4,267 )

Tax effect

    1,582       1,284  

Net of tax

    (4,047 )     (2,983 )
                 

Reclassification adjustment for realized losses on pension plan included in net income

    43       74  

Tax effect

    (13 )     (23 )

Net of tax

    30       51  
                 

Total other comprehensive loss

    (3,023 )     (1,498 )
                 

Total comprehensive income

  $ 14,182     $ 23,431  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(unaudited)

 

  

Three Months Ended March 31, 2024

 
                      

Accumulated

     
          

Additional

          

Other

  

Total

 
  

Preferred

  

Common

  

Paid-In

  

Retained

  

Treasury

  

Comprehensive

  

Stockholders’

 

(in thousands, except share data)

 

Stock

  

Stock

  

Capital

  

Earnings

  

Stock

  

(Loss) Income

  

Equity

 

Balance as of December 31, 2023

 $110,927  $586,946  $33,182  $590,970  $(70,296) $(35,109) $1,216,620 

Net income

  -   -   -   17,205   -   -   17,205 

Other comprehensive loss, net of tax

  -   -   -   -   -   (3,023)  (3,023)

Cash dividends paid on preferred stock ($0.328125 per depositary share)

  -   -   -   (1,509)  -   -   (1,509)

Cash dividends paid on common stock ($0.17 per share)

  -   -   -   (6,548)  -   -   (6,548)

Restricted stock grants, net of forfeitures (36,446 shares)

  -   -   -   -   -   -   - 

Stock grants (1,533 shares)

  -   -   -   -   -   -   - 

Net shares issued in satisfaction of deferred stock units earned (33,604 shares)

  -   -   -   -   -   -   - 

Net shares issued in satisfaction of performance units earned (24,070 shares)

  -   -   -   -   -   -   - 

Share redemption for tax withholdings on performance units and deferred stock units earned

  -   -   (1,324)  -   -   -   (1,324)

Stock-based compensation expense

  -   -   1,008   -   -   -   1,008 

Repurchase of treasury stock (282,370 shares)

  -   -   -   -   (5,820)  -   (5,820)
                             

Balance as of March 31, 2024

 $110,927  $586,946  $32,866  $600,118  $(76,116) $(38,132) $1,216,609 

  

  

Three Months Ended March 31, 2023

 
                      

Accumulated

     
          

Additional

          

Other

  

Total

 
  

Preferred

  

Common

  

Paid-In

  

Retained

  

Treasury

  

Comprehensive

  

Stockholders’

 

(in thousands, except share data)

 

Stock

  

Stock

  

Capital

  

Earnings

  

Stock

  

(Loss) Income

  

Equity

 

Balance as of December 31, 2022

 $110,927  $586,946  $30,126  $535,915  $(52,799) $(32,364) $1,178,751 

Net income

  -   -   -   24,929   -   -   24,929 

Other comprehensive loss, net of tax

  -   -   -   -   -   (1,498)  (1,498)

Cash dividends declared on preferred stock ($0.328125 per depositary share)

           (1,509)        (1,509)

Cash dividends declared on common stock ($0.17 per share)

  -   -   -   (6,074)  -   -   (6,074)

Exercise of stock options (6,473 shares)

  -   -   81   -   -   -   81 

Restricted stock grants, net of forfeitures (49,202 shares)

  -   -   -   -   -   -   - 

Stock grants (995 shares)

  -   -   -   -   -   -   - 

Net shares issued in satisfaction of deferred stock units earned (32,068 shares)

  -   -   -   -   -   -   - 

Net shares issued in satisfaction of performance units earned (52,353 shares)

  -   -   -   -   -   -   - 

Stock-based compensation expense

  -   -   1,143   -   -   -   1,143 

Repurchase of treasury stock (205,163 shares)

  -   -   -   -   (4,853)  -   (4,853)
                             

Balance as of March 31, 2023

 $110,927  $586,946  $31,350  $553,261  $(57,652) $(33,862) $1,190,970 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   

Three Months Ended

 
   

March 31,

 

(dollars in thousands)

 

2024

   

2023

 

Cash flows from operating activities

               

Net income

  $ 17,205     $ 24,929  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization of premises and equipment

    1,102       1,076  

Provision for credit losses

    4,000       1,000  

Amortization of intangibles

    321       372  

Net accretion of loans

    (247 )     (743 )

Accretion on bank premises

    (12 )     (12 )

Accretion on deposits

    (39 )     (101 )

Amortization on borrowings, net

    5       5  

Stock-based compensation

    1,008       1,143  

(Gains) losses on equity securities, net

    (86 )     191  

Gains on sale of loans held-for-sale, net

    (506 )     (49 )

Loans originated for resale

    (6,617 )     (854 )

Proceeds from sale of loans held-for-sale

    7,123       1,202  

Loss on sale of other real estate owned

    -       22  

Increase in cash surrender value of bank owned life insurance

    (1,664 )     (1,531 )

Amortization of premium and accretion of discounts on securities available-for-sale

    185       268  

Amortization of subordinated debentures issuance costs

    127       805  

Increase in accrued interest receivable

    (623 )     (239 )

Net change in operating leases

    (46 )     (42 )

Increase in other assets

    (2,946 )     (13,321 )

Increase in other liabilities

    2,232       2,253  

Net cash provided by operating activities

    20,522       16,374  
                 

Cash flows from investing activities

               

Investment securities available-for-sale:

               

Purchases

    (25,947 )     (4,763 )

Maturities, calls and principal repayments

    13,166       16,906  

Purchase of equity securities

    (807 )     (2,405 )

Net redemptions of restricted investment in bank stocks

    2,526       225  

Payments on loans held-for-sale

    -       17  

Net decrease (increase) in loans

    44,273       (33,911 )

Purchases of premises and equipment

    (138 )     (2,867 )

Proceeds from sale of OREO

    -       242  

Net cash provided by (used in) investing activities

    33,073       (26,556 )
                 

Cash flows from financing activities

               

Net increase in deposits

    52,491       396,654  

Advances of Federal Home Loan Bank (“FHLB”) borrowings

    445,000       750,000  

Repayments of FHLB borrowings

    (501,016 )     (755,016 )

Repayments of subordinated debt

    -       (75,000 )

Cash dividends on preferred stock

    (1,509 )     (1,509 )

Cash dividends paid on common stock

    (6,548 )     (6,074 )

Repurchase of treasury stock

    (5,820 )     (4,853 )

Proceeds from exercise of stock options

    -       81  

Share redemption for tax withholdings on performance units and deferred stock units earned

    (1,324 )     -  

Net cash (used in) provided by financing activities

    (18,726 )     304,283  

Net change in cash and cash equivalents

    34,869       294,101  

Cash and cash equivalents at beginning of period

    242,714       268,315  

Cash and cash equivalents at end of period

  $ 277,583     $ 562,416  

 

 

(continued)

 

Supplemental disclosures of cash flow information

               

Cash payments for:

               

Interest paid on deposits and borrowings

  $ 67,063     $ 46,590  

Income taxes

    10,861       1,257  

 

Supplemental disclosures of noncash activities

               

Investing:

               

Transfer of loans from held-for-sale to held-for-investment

    -       13,456  

Transfer of loans from held-for-investment to held-for-sale

    -       11,197  

See accompanying notes to unaudited consolidated financial statements.

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1a.   Nature of Operations, Principles of Consolidation and Risk and Uncertainties

 

Nature of Operations

 

ConnectOne Bancorp, Inc. (the “Parent Corporation”) is incorporated under the laws of the State of New Jersey and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). The Parent Corporation’s business currently consists of the operation of its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s subsidiaries, the “Company”) and making certain limited investments. The Bank’s direct and indirect subsidiaries include Union Investment Co. (a New Jersey investment company), Twin Bridge Investment Co. (a Delaware investment company), ConnectOne Preferred Funding Corp. (a New Jersey real estate investment trust), Center Financial Group, LLC (a New Jersey financial services company), Center Advertising, Inc. (a New Jersey advertising company), Morris Property Company, LLC, (a New Jersey limited liability company), Volosin Holdings, LLC, (a New Jersey limited liability company), NJCB Spec-1, LLC (a New Jersey limited liability company), Port Jervis Holdings, LLC (a New Jersey limited liability company), BONJ Special Properties, LLC (a New Jersey limited liability company) and BoeFly, Inc. (a New Jersey financial technology company).

 

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its 24 other banking offices. Substantially all loans are secured with various types of collateral, including business assets, consumer assets and commercial/residential real estate. Each borrower’s ability to repay its loans is dependent on the conversion of assets, cash flows generated from the borrowers’ business, real estate rental and consumer wages.

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The consolidated financial statements of the Parent Corporation are prepared on an accrual basis and include the accounts of the Parent Corporation and the Company. All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

 

Segments

 

FASB ASC 28, “Segment Reporting,” requires companies to report certain information about operating segments. The Company is managed as one segment: a community bank. All decisions including but not limited to loan growth, deposit funding, interest rate risk, credit risk and pricing are determined after assessing the effect on the totality of the organization. For example, loan growth is dependent on the ability of the organization to fund this growth through deposits or other borrowings. As a result, the Company is managed as one operating segment.

 

Use of Estimates

 

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates.

 

9

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1b. Authoritative Accounting Guidance

 

Adoption of New Accounting Standards in 2024

 

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. We adopted ASU 2022-03 on January 1, 2024 and it did not have a material effect on the Company’s financial statements.

 

Newly Issued, But Not Yet Effective Accounting Standards

 

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: 1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes. 2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: 1) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and 2) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. ASU 2023-09 is effective for the Company beginning January 1, 2025. The Company is evaluating the effect that ASU 2023-09 will have on its consolidated financial statements.

 

10

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 2.  Earnings per Common Share

 

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

 

Earnings per common share have been computed based on the following:

 

  

Three Months Ended

 
  

March 31,

 

(dollars in thousands, except for per share data)

 

2024

  

2023

 

Net income available to common stockholders

 $15,696  $23,420 

Earnings allocated to participating securities

  (42)  (44)

Income attributable to common stock

 $15,654  $23,376 
         

Weighted average common shares outstanding, including participating securities

  38,423   39,178 

Weighted average participating securities

  (104)  (74)

Weighted average common shares outstanding

  38,319   39,104 

Incremental shares from assumed conversions of options, performance units and restricted shares

  193   197 

Weighted average common and equivalent shares outstanding

  38,512   39,301 
         

Earnings per common share:

        

Basic

 $0.41  $0.60 

Diluted

  0.41   0.59 

 

There were no antidilutive share equivalents during the three months ended March 31, 2024 and  March 31, 2023.

 

11

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 3.  Investment Securities

 

All of the Company’s investment securities are classified as available-for-sale as of March 31, 2024 and December 31, 2023. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’ equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of March 31, 2024 and December 31, 2023. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 6 of the Notes to Consolidated Financial Statements for further discussion.

 

The following tables present information related to the Company’s portfolio of securities available-for-sale as of March 31, 2024 and December 31, 2023.

 

                  

Allowance

 
                  

for

 
      

Gross

  

Gross

      

Investment

 
  

Amortized

  

Unrealized

  

Unrealized

  

Fair

  

Credit

 
  

Cost

  

Gains

  

Losses

  

Value

  

Losses

 
  

(dollars in thousands)

 

March 31, 2024

                    

Investment securities available-for-sale:

                    

Federal agency obligations

 $76,953  $190  $(11,411) $65,732  $- 

Residential mortgage pass-through securities

  454,980   289   (58,848)  396,421   - 

Commercial mortgage pass-through securities

  25,178   -   (3,740)  21,438   - 

Obligations of U.S. states and political subdivisions

  147,553   166   (18,163)  129,556   - 

Corporate bonds and notes

  5,000   -   (29)  4,971   - 

Asset-backed securities

  1,167   -   (15)  1,152   - 

Other securities

  127   -   -   127   - 

Total investment securities available-for-sale

 $710,958  $645  $(92,206) $619,397  $- 
                     

December 31, 2023

                    

Investment securities available-for-sale:

                    

Federal agency obligations

 $55,898  $189  $(10,761) $45,326  $- 

Residential mortgage pass-through securities

  462,004   620   (51,433)  411,191   - 

Commercial mortgage pass-through securities

  25,240   -   (3,676)  21,564   - 

Obligations of U.S. states and political subdivisions

  148,795   415   (16,505)  132,705   - 

Corporate bonds and notes

  5,000   -   (27)  4,973   - 

Asset-backed securities

  1,260   -   (22)  1,238   - 

Other securities

  165   -   -   165   - 

Total investment securities available-for-sale

 $698,362  $1,224  $(82,424) $617,162  $- 

 

12

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 3.  Investment Securities (continued)

 

Investment securities having a carrying value of approximately $192.4 million and $358.0 million as of March 31, 2024 and December 31, 2023, respectively, were pledged to secure public deposits, borrowings, repurchase agreements, access to unutilized Federal Reserve Discount Window, Bank Term Funding Program ("BTFP") borrowings, and access to unutilized Federal Home Loan Bank advances and for other purposes required or permitted by law. The BTFP was a temporary facility of the Federal Reserve and expired on March 11, 2024. As of March 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

 

The following table presents information for investments in securities available-for-sale as of March 31, 2024, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer. Securities not due at a single maturity date are shown separately.

 

  

March 31, 2024

 
  

Amortized

  

Fair

 
  

Cost

  

Value

 
  

(dollars in thousands)

 

Investment securities available-for-sale:

        

Due in one year or less

 $2,284  $2,269 

Due after one year through five years

  6,362   6,338 

Due after five years through ten years

  2,283   2,241 

Due after ten years

  219,744   190,563 

Residential mortgage pass-through securities

  454,980   396,421 

Commercial mortgage pass-through securities

  25,178   21,438 

Other securities

  127   127 

Total investment securities available-for-sale

 $710,958  $619,397 

 

There were no realized gains or losses on securities during the three months ended March 31, 2024 and March 31, 2023.

 

13

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 3.  Investment Securities (continued)

 

Impairment Analysis of Available-for-Sale Debt Securities

 

The following tables indicate securities in an unrealized loss position for which an allowance for credit losses (“ACL”) has not been recorded, aggregated by investment category and by the length of continuous time individual securities have been in an unrealized loss position as of March 31, 2024 and December 31, 2023.

 

  

March 31, 2024

 
  

Total

  

Less than 12 Months

  

12 Months or Longer

 
  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

 
  

Value

  

Losses

  

Value

  

Losses

  

Value

  

Losses

 
  

(dollars in thousands)

 

Investment securities available-for-sale:

                        

Federal agency obligations

 $49,276  $(11,411) $11,597  $(93) $37,679  $(11,318)

Residential mortgage pass-through securities

  368,077   (58,848)  3,345   (77)  364,732   (58,771)

Commercial mortgage pass-through securities

  21,437   (3,740)  -   -   21,437   (3,740)

Obligations of U.S. states and political subdivisions

  118,304   (18,163)  19,806   (389)  98,498   (17,774)

Corporate bonds and notes

  4,972   (29)  2,987   (14)  1,985   (15)

Asset-backed securities

  1,153   (15)  -   -   1,153   (15)

Total temporarily impaired securities

 $563,219  $(92,206) $37,735  $(573) $525,484  $(91,633)

 

  

December 31, 2023

 
  

Total

  

Less than 12 Months

  

12 Months or Longer

 
  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

 
  

Value

  

Losses

  

Value

  

Losses

  

Value

  

Losses

 
  

(dollars in thousands)

 

Investment securities available-for-sale: